Posted 2 years ago on Nov. 19, 2012, 4:54 a.m. EST by notaneoliberal
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Published: Sunday, 18 Nov 2012 | 10:39 PM ET
By: Michael Ivanovitch
President, MSI Global When, towards the end of World War II, the British economist John Maynard Keynes led his country’s delegation to negotiate in Bretton Woods the IMF’s charter (articles of agreement), he argued that the stability of the international monetary system and world economy required that surplus and deficit countries should be held equally responsible to balance their trade accounts. read on; http://www.cnbc.com/id/49880480

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Keynes feared that America, relatively unscathed after nearly five years of brutal conflict, would be flooding Europe with its exports, creating a shortage of dollars and obstructing the recovery of a starving and war-ravaged continent.

As it turned out, Keynes’s worries about the possibility that America would selfishly pursue mercantilist policies were misplaced. Washington quickly moved to help Europe get back on its feet with a $13 billion Marshall Plan (formally known as the European Recovery Program) and kept its markets open for European goods and services.

During the three years of the Marshall Plan, the economies of 17 European countries benefiting from its assistance grew between 15 percent and 20 percent, and, largely as a result of growing imports from Europe, the U.S. trade balance recorded its first postwar trade deficit of $2.3 billion (0.2 percent of GDP) in 1971.

The US Remains Engine of World Economy

The U.S. is still the largest buyer of goods and services produced around the world. In the first nine months of this year, America’s trade deficit with China, Japan and Germany accounted for nearly two-thirds of its $559 billion trade gap.

Keynes must be turning in his grave: Even with a feeble 2.3 percent GDP growth, America is the engine of world economy, while the second, third and fourth-largest world economies are living off their trade surpluses with the U.S. and the rest of the world.

Those wondering about what went wrong with the world economy should look no further. With their huge trade surpluses, ranging from $86 billion (Japan) to $217 billion (Germany), these three countries – one-fourth of world GDP – are making no net contribution to global economic growth. Worse: they are, in fact, a drag on world economy.

And there is no end to this. Almost by design, Japan and Germany are export-led economies. Neither country wants to abandon this growth strategy by generating more demand and output from their domestic spending. China apparently wants to get off the export bandwagon, but it will take some time to significantly change the composition of its economic growth.

Do you think that if say it would equal a 6% boost in the economy, that the inflation would equal that? More so or less? Ive never really thought about it. It seems that the two should go hand in hand, but Im not sure.

I'm not sure myself. I think that one of the main problems is the de-industrialization of the US in conjunction with high oil price that is at the core of the problem. This has diminished the consumer market and reduced real wealth creation. If the cash were used to rebuild our manufacturing base, thereby creating jobs, it would, I believe, have a real positive impact.